OSFI consultation paper on reinsurance discusses a variety of hot-button issues

Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued a much-anticipated consultation paper on reinsurance that features discussion of a broad range of hot-button issues affecting the reinsurance sector.
The 21-page document gives a broad synopsis of issues the regulator is currently considering. OSFI does not take a position on any of the issues discussed in its paper.
Instead, reinsurers are invited to read the consultation paper, available at <http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=3>, and make submissions on  any of its topics to OSFI by no later than Mar. 6, 2009.
The paper is divided into three sections covering unregistered reinsurance, registered reinsurance and governance.
The section on unregistered reinsurance looks at issues such as:
•    how collateral requirements for unregistered reinsurance are handled,
•    the 25% limit on risks ceded to unregistered insurers,
•    the use of ‘Letters of Credit’ (LOC) as collateral,
•    streamlining approval requirements for unregistered reinsurance with related parties without putting policyholders at risk, and
•    mutual recognition for reinsurance supervision.
In the registered reinsurance section of the paper, OSFI is seeking industry opinion on capital requirements, the limit that prevents property and casualty insurers from ceding more than 75% of their gross premiums to reinsurers and streamlining approvals for registered reinsurance transactions.
Finally, the paper looks at governance issues, including what is now known as “contract certainty” (i.e. time lags between the initiation and execution of reinsurance contracts) and the use of insolvency and other contract clauses.